The Australian retail corporate bond market is underdeveloped and most companies have been unwilling to issue bonds domestically due to lack of demand and pricing uncertainty.

Large companies including Woolworths, Origin Energy and CSL have tapped overseas markets to raise debt finance this year.

A sophisticated local market would reduce the country’s reliance on overseas funding markets, which are virtually closed due to Europe’s financial instability. The issue is particularly pertinent to the big four banks, which are big borrowers on overseas markets.

It would also aim to overcome an investment bias that favours more risky and volatile equities over debt.

Credit Suisse Australia chief executive David Livingstone and veteran investment banker Mark Burrows have co-written a letter inviting people to the December 13 meeting. It will bring together players from the demand side such as fund managers, and the supply side, such as corporate advisers.

“The Australian government is concerned that the current, underdeveloped domestic debt market does not provide sufficient access to liquidity for corporate borrowers in the volume and tenor desirable, nor does it provide an adequate platform for investors to build sizable, diversified portfolios of Australian corporate bonds," the letter, sent yesterday, says.

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Mr Burrows, vice-chairman of Credit Suisse’s Asia-Pacific investment banking division, is a business representative for the Australian government at the Group of 20, including at its recent summit at Cannes.

In December last year, Mr Swan identified the development of a deep and liquid domestic corporate debt market as critical to putting competitive pressure on bank lending rates to business and to harnessing superannuation savings to fund more productive investment in the economy.

Treasury has been consulting industry for a year about developing the domestic corporate bond market, as recommended in a government-commissioned report written by finance veteran Mark Johnson in 2009. Some in the industry have become frustrated about the slow pace of the reform.

Treasury is finalising reforms to further reduce red tape associated with issuing corporate bonds to retail investors, including streamlining disclosure requirements and prospectus liability regulations for directors. The round table meeting is intended to complement these steps and to identify any other barriers.

Australian companies have raised about $39 billion this year and have $173 billion of debt outstanding, of which 81 per cent has been issued into offshore markets. Companies raising debt overseas have to pay foreign exchange hedging costs.

Policymakers believe a more developed local bond market would be able to leverage off Australia’s $1.3 trillion superannuation savings pool, the fourth largest in the world.

Local investors and super funds are underweight in fixed income. The average super fund has just 11 per cent of its investments allocated to fixed income, compared with an average of 50 per cent for pension funds in Organisation for Economic Co-operation and Development economies.

Mr Medcraft, a former investment banker, is understood to support developing the domestic corporate bond market. Others invited to the meeting include Australian Office of Financial Management chief
Robert Nicholl
and the executive director of Treasury’s markets group, Jim Murphy.